Current asset allocation guidelines
Addendum to AIGA investment policy
The asset allocation targets in the investment policy relate to the state of the overall portfolio of working capital reserves that will be pursued at the end of FY 2015, as the levels of the fund stabilize following any transitional expenses or adjustments from the sale of the building, the elimination of liabilities and investment in the new offices.
The targets set for investments vary by fund; the following represent the investment objectives established for our investment managers.
AIGA Endowment Fund
The primary objective for the AIGA Endowment Fund is to invest for long-term growth. No annual distributions are expected from this pool of assets. Given the emphasis on growth, a 70 percent equity allocation and 30 percent target to fixed income and cash, each +/- 5 percent points, are appropriate targets in order to achieve the primary objective.
AIGA Sustaining Reserves
The primary objective for AIGA’s Sustaining Reserves Fund is long-term growth with an expected 4–5 percent of assets distributed annually to fund various projects. In order to preserve real purchasing power after the effects of inflation and spending, at least a 60 percent allocation to equities is required, with the remainder in cash and fixed income.
AIGA 2020 Fund
This pool of assets is expected to be drawn down over the next 3–5 years as projects are funded. Given the short time horizon and low risk tolerance, an allocation comprised of 80 percent short-term investment grade fixed income and 20 percent cash is warranted.
Note from Laura Allen, our investment advisor, April 2015
We believe two critical variables must be considered when determining the appropriate asset allocation for endowments and foundations: the expected annual spending policy and the overall risk tolerance of the Board. The current allocation policies for the AIGA portfolios are consistent with our understanding of these two variables. We approach asset allocation from a long-term strategic perspective and believe that diversification across asset classes is the most effective way to control risk and generate consistent returns over time.
Given our view that the global economic expansion will endure over the next year, which should be accompanied by continued muted inflation and a gradual drift upwards in interest rates, we believe the portfolios should be invested at or slightly above the target allocations to equities. Currently, the Endowment Fund has 71 percent of assets in equities and the Sustaining Fund with 61 percent in equities. We will likely allow the equity exposure to edge higher by ~1–2 percentage points, but would probably rebalance the portfolios should the equity allocations reach the upper end of the stated targets.